The a2 Milk Company Ltd (ASX: A2M) share price is currently up 7% so far today in what has been a volatile last 30 days for the a2 protein company.
A month ago the share price was trading above $12 but the company announced that revenue wouldn’t be as high as some investors were expecting, it’s only going to grow around 70% in FY18 to be between NZ$900 million to NZ$920 million.
However, that doesn’t seem to have deterred investment manager giant Blackrock taking up a 5% stake in a2 Milk on 31 May 2018.
Blackrock manages more money than any other investment manager in the world, it had over US$6.3 trillion in assets under management at the end of March 2018. Blackrock is quite supportive of the businesses that it invests in and it’s a vote of confidence to have it as part of the shareholder base.
The share price that Blackrock chose to invest at is very close to the current price, so any investor today will get a similar return to Blackrock.
There’s a lot to like about a2 Milk. It has strong brand power, growing profit margins and it’s expanding to new geographical areas like the north east of the United States.
A lot of value investors are wary about the current valuation. The company has already disappointed the market once and it may do so again if it can’t deliver on the high expectations that are built into the current share price.
A2 is currently trading at 31x FY19’s estimated earnings. It will likely grow into its valuation as time goes on, but the company can’t afford any major slipups against expectations in the short-term or else the share price could easily drop another 10% or more. Investors should keep an eye on how popular other competitor a2 products are. For now, I’d avoid buying a2 shares until its annual result is revealed.
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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of A2 Milk. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.